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Director Baden Brown said the company had big plans for the land - 20 sections, houses built under the eHaus brand, natural drainage, solar power and a central green space.

It will now have to happen somewhere else.

The land was formerly a playing field for St George's Preparatory School. The arsenic level was suitable for that, but in places it is five times the level permitted for an environmental subdivision where babies crawl and people grow vegetables.

Mystery surrounds the source of the arsenic, which could occur naturally in some rock, according to the Ministry of Health website.

It could also build up from human activities such as sheep dips, timber treatment yards, scrap yards, crop growing or orchards.

Ingesting large amounts could cause arsenic poisoning, with skin changes, damage to organs and cancers. Ingesting large amounts in a short time can kill.

"We are hoping to develop another piece of land, around Whanganui. This is our head office so we want to do it here."

The London St land was owned by Harvey Green. He approached ecoBuild about developing it and a company was formed to do so. He was to finance the build, and recoup money for the land as the sections sold.

Green has not responded to requests for comment.

Soil at the site was tested by Geo & Hydro - K8 Ltd, a council spokeswoman said. Tests showed levels of arsenic too high for residential use.

Other uses of the land were possible.

"The proposed activity dictates the level of investigation, reporting and any remediation which may be required."

To fix the problem ecoBuild tried scraping topsoil off the London St site early last year, thinking more could be brought in or soil could be mixed. But the subsoil also had high levels of arsenic.

Brown said it might be "naturally occurring". Remediation would be too costly and was not viable. People interested in the development have been contacted and told it will not happen in that place.

"The reason we are not proceeding is because of the [soil] problem, not because we are unable to do so," Brown said.

The London St land also had a high water table, which could have been handled by drainage. And its intersection with State Highway 3 was the subject of a difficult consultation process with the NZ Transport Agency - an exit was approved in the end.

The proposed subdivision would have been "different", Brown said, with swales and planting rather than pipes for drainage.

The 20 sections would have been 600sq m, with one-storey houses, each with three to four bedrooms.